Inflation slows to 5.1% in December 2018

MANILA, Philippines — With the rise in food and transport costs slowing, inflation last month eased to 5.1 percent from six percent in November.

Data released by the Philippine Statistics Authority (PSA) showed the smallest rise in the consumer price index in seven months, cheering investors after five straight rate hikes last year raised the risk of slower economic growth.

Malacañang said there is no room for complacency despite the improving inflation figure.

“The President and this administration will not fall into complacency in balancing the country’s overall economic progress and alleviation of our people’s distress to inflation,” presidential spokesman and chief legal adviser Salvador Panelo said in a statement yesterday.

“Filipinos can expect that we will remain vigilant as we continue to monitor the prices of basic goods and commodities and implement measures to further ease the burden of our countrymen,” he added.

Bangko Sentral ng Pilipinas (BSP) officer-in-charge Diwa Guinigundo said the supply-driven inflation trend in 2018 turned out to be short-lived as shown by the negative month-on-month inflation rate in December.

“With seasonality, month-on-month inflation for December 2018 stood at -0.6 percent while deseasonalized series shows month-on-month inflation rate of -0.4 percent,” he said.

He added the annual impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law was less then one percentage point and is diminishing.

Inflation averaged 5.2 percent in 2018 from 2.9 percent in 2017 and exceeded the BSP’s two to four percent target range due to higher oil and food prices as well as the weak peso.

Core inflation eased to 4.7 percent in December from 5.1 percent in November, suggesting that demand pressures have not significantly built up.

“As we indicated previously, the uptick in core inflation was rather an aberration brought about by one single factor of higher transport cost due to adjustment in transport fare. But for December, as expected following the non-convergence of various measures of core inflation, the official core inflation actually eased,” he said.

The central bank’s Monetary Board raised interest rates by 175 basis points from May to November last year to prevent inflation from spiraling out of control. However, it paused from its tightening task in December as inflation was seen easing back to the two to four percent target range.

“The aggressive monetary tightening the BSP implemented from May to November was therefore aimed only at ensuring that the supply shocks from more than 60 percent increase in oil prices and the significant inflation rates of rice, fish, meat and vegetables did not evolve into sharp gains in wages, transport fares and prices of other services,” Guinigundo added.

“What was also pivotal in the anti-inflation efforts was the decisive action of the government to immediately undertake non-monetary measures, including the liberalized importation of key commodities including rice, fish, meat and sugar,” he said.

Stable inflation

The BSP sees low and stable inflation averaging 3.2 percent in 2019 and three percent in 2020 with the early implementation of the rice tariffication law and sustained reforms in supply logistics, Guinigundo said.

“With lower price movement, we could be optimistic about the growth prospects and their positive feedback to inflation,” he said.

He added authorities would continue to be vigilant in the task of taming inflation as risks persist in the country and abroad without losing sight of the requirements of economic growth.

“But the BSP shall also keep on relying on the analytics of what recent data would suggest in terms of the direction and magnitude of any potential monetary action,” Guinigundo said.

Rising fuel prices and higher taxes on certain commodities pushed up inflation last year, and it reached a near-decade high in September and October before it started to cool.

The BSP next meets on Feb. 7 to review policy. It left rates on hold on Dec. 13 after five straight hikes totaling 175 basis points that brought the rate on its reverse repurchase facility to 4.75 percent.

Trinh Nguyen, senior economist of France-based investment bank Natixis, said the BSP is likely to track the movement of the US Federal Reserve due to the country’s widening current account deficit.

The US central bank has penned a less aggressive monetary action of two instead of three rate hikes this year compared to last year’s four as it continues to pursue a normalization path.

Nguyen said the BSP is seen raising benchmark rates by 25 basis points this year as its hiking cycle is close to over.

“With inflation trending back to the BSP’s target of 2-4 percent, the case for the BSP to reverse its stance as early as the second quarter 2019 has gained considerably,” said Nicholas Mapa, senior economist at ING Bank in Manila, adding that a rate cut should boost growth this year.

The Philippine stock market rose as much as 1.6 percent to its highest in four months.

“What’s important is there’s a broader expectation that inflation is decelerating,” said Garie Ouano, research director at Chinabank Securities Corp.

National Statistician Lisa Grace Bersales said full-year 2018 inflation of 5.2 percent was the highest annual increase in the past 10 years. 

“But we would like to further say that all regions in the Philippines posted lower or a deceleration in inflation in December compared to November 2018. The main contributors to the deceleration of inflation in December are food and nonalcoholic beverages and transport,” Bersales said.

Food and non-alcoholic beverage index posted slower annual increment of 6.7 percent in December while the transport index registered four percent.

Mitigating measures effective

In a statement, the country’s economic managers composed of the National Economic and Development Authority (NEDA), Department of Finance (DOF) and Department of Budget and Management (DBM) said the lower inflation signifies that the mitigating measures already in force are broadly effective.

“With this, full-year 2018 inflation averaged at 5.2 percent, which is higher than last year’s 2.9 percent inflation but within the adjusted inflation forecast of the Development Budget Coordination Committee (DBCC),” the government’s economic team said.

In October, the DBCC revised its inflation forecast for this year to 4.8 percent to 5.2 percent from the original target of 2.0 percent to 4.0 percent.

“The rate of price increases has remained manageable, giving the country adequate elbow room to sustain its economic growth and reach its development goals,” they added.

The economic managers, however, acknowledged that the faster inflation, particularly in the middle of 2018, had affected many Filipinos, especially those in the disadvantaged sectors.

“Nonetheless, we continue to exert all efforts to bring inflation within the government’s target range of 2 to 4 percent, and ensure price stability all year round,” they added.

They said there should be more players in the rice market for the people to feel the positive effect of the Rice Tariffication Bill.

“Ensuring sufficient supply of rice and other major agricultural products from local sources likewise remains crucial over the near term with the looming El Niño phenomenon in 2019,” they said.

They added that short-maturing, high-yielding and resilient varieties of crops should be utilized, alongside efficient water management systems.

“Over the medium- to long-term, reassessing the vulnerability and suitability of farm areas should also be prioritized to bring forth adaptive farming activities,” the economic managers said.

They also vowed to aggressively push for the full operationalization of the National Single Window and at the same time step up anti-smuggling measures.

“We also need the Philippine Competition Commission to be vigilant in curbing anti-competitive behavior, particularly in the rice market,” they added.

The economic managers also said the Department of Energy is closely monitoring domestic pump prices to ensure that the new excise tax on oil is not yet reflected in the prices at the start of the year, as old fuel inventories are not subjected to the tax increase.

“We also ask concerned government agencies to fast-track the implementation of the mitigating measures scheduled this year under the Tax Reform for Acceleration and Inclusion law, particularly the unconditional cash transfer and fuel vouchers,” managers said.

“These could fend off possible second-round effects, which may arise from further demand for wage and fare increases,” they added.

Excise tax suspension

Senators, meanwhile, renewed their call for Malacañang to suspend the second round of increases in fuel excise taxes that took effect on Jan. 1 despite forecasts inflation will further slow down this year.

“Families can better cope with the slowing down of inflation if the implementation of the second round of increases in excise taxes on petroleum (products) is suspended,” Sen. Joseph Victor Ejercito told reporters.

Sen. Sonny Angara, chairman of the ways and means committee, said the forecast of slowing of inflation is a welcome relief for the public after months of increasing prices.

“But government must not let down its guard in monitoring unscrupulous sales practices and overpricing of food, gas, diesel and other basic commodities,” Angara said.

Sen. Paolo Benigno Aquino IV earlier warned the government is starting the year on the wrong foot by pushing through with the second round of tax hikes, saying it may worsen the burden of high prices on the Filipino people.

“The best New Year’s resolution for the country is to lessen the burden of our people,” said Aquino, who voted against the ratification of TRAIN.

He said he hoped the government would defer the implementation of the second tranche of excise tax on fuel until inflation normalizes or until prices of food and other goods go down.

Rep. Michael Romero of party-list 1-Pacman said the government should sustain its gains in taming inflation.

“The Revised Agricultural Tariffication Act must be swiftly implemented, rental rates on housing units for the poor and middle class and business space for small entrepreneurs must be tamed and more safety nets are needed fast,” he said.

He said with world oil prices at low levels, “it is now time to build the country’s national strategic fuel reserves to shield all Filipinos from crude price hikes.”

Romero, an economist, warned the administration’s economic managers that the combined effects of the recent typhoon and the second round of increase in fuel taxes could worsen inflation again.

“Let us learn from the lessons of 2018. Avoid the dismal mistakes made by the National Food Authority (NFA). Let us all keep in mind that Metro Manila is not the Philippines. Inflation continues to be elevated in many provinces. The goal is to bring down inflation to below four percent,” he said.

Another congressman, Carlos Zarate of Bayan Muna, said the administration should not crow about the easing of inflation to 5.2 percent last month from a high of 6.7 percent in September-October.

He said 5.2 percent is almost twice the 2.9-percent increase in prices in 2017.

“The 5.2-percent national average for 2018 is much higher than the projected 2-4 percent by the economic managers when they pushed for the passage of the TRAIN law,” he said.

Zarate added that the public should brace for another round of increases in inflation due to higher fuel taxes this year.  –   Paolo Romero, Jess Diaz, Edith Regalado